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Kiwi labour market remained strong in 2Q

Kiwi labour market remained strong in 2Q

Employment in New Zealand rebounded 1.2%q/q (26,000 persons) in the June quarter (JPMorgan 0.3%, consensus 0.2%) after contracting 1.2% (28,000 persons) in the previous three months. On this evidence, labour market conditions remained firm despite a rise in the unemployment rate from 3.7% to 3.9%. The participation rate unexpectedly shot up from 67.7% to 68.6% - this probably is more noise than signal, as it reverses the big drop in the previous quarter.

Employment rebounded across most industries, with big gains reported in electricity (+8.6%), education (+8.6%), and property/business (+4.3%). The only falls recorded in job growth were in the agriculture (-7.0%), mining (-12.3%), and manufacturing (-4.7%) sectors.

With business confidence at 17-year lows amid soaring petrol prices and tighter credit conditions, many companies will be reluctant to hire new workers going forward. Firms will continue to shed human capital to cut costs as economic momentum slows, meaning employment growth probably will moderate in coming quarters. That said, the migration of skilled labour abroad will keep the pool of available workers low, curbing the rise in the unemployment rate.

In recent commentary, RBNZ Governor Alan Bollard said that “The weaker economy is expected to reduce pressure on resources, making it more difficult for firms to pass on costs and for higher wage claims to be agreed.” Amid such expectations, despite that inflation remains above the RBNZ’s 1-3%oya target range, we expect a further three rate cuts this year to help prop up the Kiwi economy, which currently is in recession. Our forecast calls for the OCR to be 7.25% by year-end.
The details:
• Seasonally adjusted employment rose by 26,000, or 1.2%q/q.

• Full-time and part-time employment rose 1.0%q/q and 1.6%, respectively.

• The seasonally adjusted unemployment rate rose from 3.7% to 3.9%.

• The labour force participation rate rose 0.9% to 68.6%.

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